Zoom Video Investors Cheer Q4 Results, Analysts Stay Conservative

Zoom Video Communications, Inc. ZM reported fourth-quarter results highlighted by an earnings and revenue beat.

Zoom Video Creported quarterly earnings of 15 cents per share, which beat the analyst consensus estimate of 7 cents. The company reported quarterly sales of $188.3 million, which beat the analyst consensus estimate of $176.54 million.

Zoom reported another quarter of "strong results," including a 78% year-over-year growth in revenue, 94% growth in total remaining performance obligations, 61.2% increase in customers to 81,900, and 86.3% growth in customers with more than $100,000 in revenue at 641.

Wells Fargo analyst Philip Winslow said the report also showed a net dollar expansion rate above 130% from new customer growth and incremental purchases from existing customers.

Baird analyst William Power added a few other positive takeaways in a note. These include big contract win announcements, such as Johnson and Johnson with 60,000 Meetings users while VMWare is adding a large Phone deployment, operating margin of 20.4% beat expectations of 9.9% and free cash flow of $26.6 million exceeded estimates of $5.5 million.

Related Link: The 'Stay At Home' Stocks Analysts Are Beginning To Like Due To The Coronavirus

What To Keep In Mind

Zoom Video's 78% revenue growth rate fell short of the "high bar" of 80% or more but overall profit was still "very impressive," Morgan Stanley analyst Meta Marshall wrote in a note. Also, the net expansion rate has fallen from 140% in the prior year to 132% although management is confident it can sustain a 130% net expansion rate for the near-term.

Investors should also expect gross margin upside seen in the quarter to come down as the company supports increased free users in China. Gross margins should track closer to the low-end of management's 80% to 82% gross margin range.

Coronavirus Commentary

Zoom's products and services will come under greater focus amid the global coronavirus epidemic, according to Stifel's Tom Roderick. The company is well positioned to address a growing need from businesses and workers to communicate and this should translate to industry-leading growth rates.

However, the stock is already trading at "nosebleed" valuations and investors should stick to the sidelines, the analyst wrote in a note.

Management's Guidance

Zoom's management guided its full-year fiscal 2021 earnings to be between 42 cents to 45 cents on revenue of $905 million to $915 million. This was slightly ahead of the Street's estimates although slightly below "elevated" investor expectations, Credit Suisse's Brad Zelnick said. Management's revenue guidance looks to be conservative as it implies a slight deterioration in net expansion rates, doubling of S&M, and average revenue per new customer growth to fall by 20%.

ZM Ratings And Price Targets

• Wells Fargo maintains at Equal-Weight, price target lifted from $70 to $90.
• Baird maintains at Outperform, $120 price target.
• Morgan Stanley maintains at Equal-Weight $90 price target.
• Stifel maintains at Hold, price target lifted from $75 to $90.
• Credit Suisse maintains at Neutral, price target lifted from $80 to $95.

Shares of Zoom Video were trading higher by 8.7% to $127 at time of publication.